20 Year Old Buys Home With $183,000 FHA Loan And Just 3.5% Down

Denise Tejada bought a house last month at the age of 20, thanks in large part to a loan guaranteed by the Federal Housing Authority.

This story offers a dramatic demonstration that, despite the housing bubble causing the worst economic downturn in generations, the ideology of home ownership is alive and well in the United States and still being supported by the government.

Without question, Tejada's loan is toxic--to her and to the taxpayers who are backing the loan. Her house cost $155,000. Tejada's loan was apparently made on a micro-down payment of just 3.5%, the minimum down payment to qualify for an FHA loan. On top of this, however, she got an additional government backed loan to make improvements. Her total loans amount to $183,0000. In short, she was immediately underwater on her new house.

The monthly payments on her debt amount to $1328. Her income is $2470, leaving her with just $285 a week to live on. She's paying 54% of her income to make the mortgage payments. She earns that income by holding down one full time and two part time jobs. Obviously, this woman has a strong work ethic. But it also means her income is precarious. With unemployment still rising, she obviously should be worried about losing one of her three jobs. A loss of one of them would likely leave her unable to make the debt payments.

Tejada appears to be using imaginary numbers about the value of her house. She says that when she bought it, the house was just a “box” with no kitchen or bathroom. Now it is "gorgeous". She claims the renovation has increased the value of her home from $155,000 to $255,000.

"I bought my house for $155,000. And now, after all the fixing, after all the remodeling, my house is worth $255,000. So just within a month period, I made a $100,000," she tells Market Place's Scott Jagow.

As far as we can tell, this is just mark-to-imagination valuation. She doesn't give any indication about how she arrived at the conclusion that she has made a $100,000 gain in just a month. Even if her improvements had dramatically increased the value of the house beyond the cost of the improvements themselves, she would have to contend a declining housing market. From last year to this year, the median price of homes sale in Oakland, California has declined 28%.

Tejada sees her house as an investment rather than a home. And she is planning on buying more homes, despite the fact that her income is already strained by her debt. This three bedroom house is just her "first house" and is "a little too big for me." This is the opposite direction house buying traditionally moved in, with young people buying a small fixer-upper or renting and moving into larger homes as their incomes and family size increased. Tejada has started big.

Tejada, a first generation immigrant from Guatemala, isn't going to college. If that was ever the American dream, it isn't hers. She's going into home buying. Her older brother also bought a house. Indeed part of the reason she bought her house so young was that she wanted to beat her brother, who bought his house at the age of 21. She is very happy about the fact that her friends seem impressed that she owns a home.

"This is the kind of mentality that our dad pretty much embedded in us since we were 12 years old," she says.

Her father bought a house shortly after moving to the United States. Shortly after buying the home, the family started acquiring nicer things. New cars, new televisions, that kind of thing. When Tejada's brother asked about where they were getting the money for these things, the father said it was all because of the house.

That sounds a lot like the father was using his house as an ATM, most likely borrowing from a home equity line of credit to purchase consumer goods. As the value of the house increased during the housing bubble, the family seemed to be getting richer. Most likely, they were simply acquiring more debt. This way of thinking has been passed on to Tejada--who believes she made $100,000 in a month.

The Tejada family obviously has a very strong worth ethic and a savings ethic as well. Unfortunately, something appears to have gone haywire when it comes to homes. The children were encouraged to work and save but then to spend their savings on homes and to be completely unafraid of massive amounts of debt. This is, in short, a living breathing example of the ideology of home ownership at work.

We wish Tejada nothing but the best of luck. We hope she really can keep paying her mortgages and that she somehow makes money on her house. But it is outrageous that the FHA is guaranteeing her loans, putting the taxpayer on the hook for her precarious financial situation.

Here's a video of Tejada and her brother discussing her house. Also, click here for Market Place's interview with Tejada.